Friday, July 31, 2015

Citigroup will close California banking subsidiary Banamex USA, formerly California Commerce Bank. The bank had been operating under consent orders from the FDIC and other regulators for three years because of money laundering and poor management practices at the bank. Regulators suspect the bank moved money and disguised transactions for terrorist groups and drug distributors. The bank promised to mend its ways, but a recent review by state regulators found that operations had deteriorated. The FDIC found that the bank had failed to hire a compliance officer and hinted that the bank was not taking its obligations seriously. Now Banamex USA will pay a $40 million fine to California, the largest bank fine ever assessed by that state, and an additional $100 million to the FDIC.

The combined penalty of $140 million is enormous for a bank with $700 million in deposits and $1 billion in assets. Few banks could absorb a penalty equal to 20 percent of deposits and continue to operate. However, the penalty does not seem disproportionate for a bank that served criminals and thumbed its nose at the law. The penalty does not include an order for Banamex USA to close, but it would be too costly for Citigroup to keep it open. A statement from Citigroup promised an orderly wind down. It did not specify a period for ending operations and returning deposits to depositors, but for a bank of this size wanting to minimize its costs, the process could take one to three months.

The more serious crime problem facing Citigroup is in Mexico, where its Banamex subsidiary is being investigated by at least six U.S.-based law enforcement and regulatory agencies, along with authorities in Mexico, for violations ranging from securities fraud to bribery. Banamex also provided the Mexican end of many, perhaps most, of the illicit money transfers seen at Banamex USA. Investigators are trying to find out how deeply Banamex was or is involved in the endemic corruption at one of its largest customers, the state-owned oil company in Mexico. Banamex is much larger than Banamex USA, providing nearly 10 percent of Citigroup’s revenue. If the situation at Banamex is half as bad as what was found at Banamex USA, that will be, in one form or another, a considerable financial blow to Citigroup.

Two executives received jail sentences for their roles in the collapse of Anglo Irish Bank, the bank that nearly broke Ireland in the last real estate bust. They were convicted of actions related to deceptive record-keeping. One executive was sentenced to three years in prison and another to two. A low-level manager was convicted in the same trial and was sentenced to 18 months. These are the first convictions in the Irish banking collapse and are notable mainly for how little the defendants had to do with the high-risk banking strategies that led to the spectacular collapse at Anglo Irish Bank.

Nothing has really been solved yet in six months of negotiations between Greece and Europe, so banks in Greece will stay in limbo for months, open but operating with severe restrictions. Greece says recapitalizing the banks this year is a priority, but the government’s optimistic plan of completing that before the end of the year will surely slip into 2016 as obstacles are encountered along the way.

Virtually no new banks or credit unions have opened in the United States in the last five years. Part of the reason is that bank investors are often able to buy up troubled or failed banks, a shortcut way to have an operating bank. The bigger issue, though, is that the banking industry as a whole is still overextended. It is hard for a new business to thrive in an category that is destined to shrink by at least another 15 percent in the coming years.

China has ordered its banks to add up their stock market exposure. It is thought that a stock market decline of more than 50 percent from its peak, a scenario that seems likely enough, will leave millions of loans without adequate collateral. That could put several banks at risk of insolvency, and authorities want to find out in advance which banks are facing that risk.

Thursday, July 30, 2015

Microsoft Windows 10 was released to the public, and although there are a handful of privacy and security complaints, on the whole the reaction is that the new operating system version is a well-constructed successor to Windows 7 incorporating the more successful features of Windows 8. Windows 10 looks to be more stable and efficient than either Windows 7 or 8 and is highly compatible with both, so individual users will find it easy to make the adjustment when they buy a new PC with Windows 10 installed.

To explain the jump from 7 to 10, Windows 8 was an experiment in adding touch-screen technology to the desktop that, even with updates, worked only awkwardly with a mouse, trackpad, or laptop. Most Windows 7 users never upgraded. Windows 9, then, was canceled or skipped, depending on who you ask. And that brings us to Windows 10.

Some will install the upgrade, which is free for those with qualifying hardware, but how many will do so is an open question. Microsoft predicts 1 billion upgrades within 2 years, but one estimate of release-day upgrades was slightly short of 1 million. Surely that number is too low, but if accurate, that is a pace to get to 1 billion in 3 years. The bigger question is about what will prompt the average user to upgrade. Early reports suggest the upgrade can be a three-hour process, and Windows 10 lacks any must-have features, so users who don’t use their computers often enough to care about the speed boost that comes with Windows 10 can safely postpone the upgrade indefinitely.

There may be another reason not to upgrade. Microsoft has said Windows 10 is the “end of the line,” the last desktop operating system it will release. OS maintenance will continue at Microsoft, with the occasional new features released in the periodic patches. The “end of the line” statement comes very close to guidance from Microsoft that the PC is sunset technology. Users who adopt that story may prefer to just hold on with whatever equipment they have already, waiting to see what comes next and upgrading or replacing only if the computer actually breaks down. Knowing that many users have not upgraded, software publishers will find it easy enough to keep their applications compatible with Windows 7, and that in turn means that users won’t be forced to upgrade their OS just for application compatibility.

PC manufacturers, though, certainly do not agree that the PC is on its way out, and they will find some way for PCs to show visible progress from year to year so sellers can offer shoppers a reason to upgrade their hardware. If Microsoft has guessed right, though, there won’t be many PC shoppers to try to impress.

Tuesday, July 28, 2015

Hillary Clinton has suggested a goal of half a billion solar panels in the United States. The target number, 500 million, was probably selected because it sounds big, but it is less of a stretch than it sounds.

The United States is already installing solar panels at an impressive pace. There are about 75 million already, and there could be 125 million by the end of 2016. That would be already one fourth of the way to the goal Clinton has proposed for 2020.

Prices for solar panels decline every year and the pace of installation picks up accordingly. Based on an extrapolation of the trends, 500 million will occur on its own without policy intervention, if not in 2020, then by 2022. Solar has its limits, but the goal of half a billion does not venture near any practical limit. It might take up the roofs of one eighth of the country’s houses. It will supply about one twentieth of the electricity for the country, not enough to require a large-scale adjustment in the electric grid. The plan falls far short of the ideal of energy independence that occasionally gets mentioned. The cost will be about one week of GDP, not such a large sum of money after you divide it up among millions of owners and investors. It is similar to the previously proposed cost to build one new nuclear power station, a project that has fallen by the wayside in part because it would take 20 years to do. To look at the solar plan another way, at 500 million the number of solar panels will exceed the number of automobiles in the United States, but still fall short of the number of privately owned firearms.

It is not so hard to be a leader in solar power among U.S. presidential candidates. After all, four years ago, one major-party candidate campaigned with a proposal to abolish solar power, calling it a fraud. Of course, that was a losing position, but the winning candidate promised only to “expand” solar power, something that was happening already. If those positions seem timid, it helps to remember that the cost of installed solar capacity has been cut in half since then. It is the price decreases that make solar power so easy to support this year and into the future.

Monday, July 27, 2015

Nielsen data seems to show that “TV is toast,” to quote Dennis K. Berman writing on Twitter. The graph is from the Wall Street Journal. You can see that younger viewers are abandoning television faster than the over-50 segment.

But wait. The 18-34 segments also show the biggest gains in employment over the same period, with unprecedented levels of long-term unemployment and partial employment gradually fading, year by year. So are people watching less television just because they are working more hours? If so, then maybe television viewing can stabilize with an improving job market.

Unfortunately for television, the employment trends could not explain away more than perhaps a third of the television viewing trends. Unemployment rates were never as high as 23 and 32 percent respectively, and they remain elevated as of 2015, so the decline in unemployment was not as large as the decline in television.

There is another reason why the unemployment idea doesn’t help much in explaining the TV data. In recent years when money is tight, as in the case of unemployment for example, people cancel cable and stop watching television. Money is not as tight as it was five years ago, so based on that, there ought to be more viewers, but Nielsen says there are fewer. It is hard to escape the conclusion that television is losing its appeal among working-age viewers.

Friday, July 24, 2015

Citibank is paying $700 million to 8.8 million customers who were enrolled in credit monitoring or payment deferment programs without their permission or after giving the customers false information. Citibank will also pay a $35 million penalty. Discover Bank is refunding $16 million to its student loan borrowers to compensate for procedural errors. In many cases the bank stated that the minimum amount due was larger than it was. The bank will also pay a $2.5 million penalty and has promised to reform a host of illegal practices in its student lending business and especially in student loan collections.

Thursday, July 23, 2015

Surveys say Pluto is still a planet, in spite of a formal action by a small number of astronomers to classify it as a non-planet.

This partly reflects people not keeping up with science, but mostly reflects the belief that the International Astronomical Union (IAU) made a mistake in adopting a definition of planet so narrow that it excludes most bodies that people would think of as planets.

Most people, I believe, think of a planet as a kind of material object. That is, if you see a photo of an object and it looks like a planet, and it is the right size to be a planet and made of the right materials, then it must be a planet.

By contrast, the definition adopted by the IAU defines a planet based not on what it is but on what it does. The core of the IAU definition is that a planet must be in a highly regular orbit around the sun. Pluto would be a planet under the IAU definition if its orbit were almost perfectly circular. At least, I think it would. There are other complexities in the definition, and even with the benefit of my degree in mathematics, my skill at calculus is not strong enough to work out the myriad details of applying the IAU definition to this hypothetical case.

There are other obvious problems with the IAU definition of a planet. Following conventional theories of planet formation, every planet must at one time have been a non-planet. At one time Earth would have been considered a dwarf planet, and it went along that way for tens of millions of years, until one day gravitational effects from Jupiter stabilized its orbit enough that it qualified as a planet. It is not that Earth got larger or changed in any material sense to go from being a dwarf planet to being a planet, but that its orbit lined up better. Unfortunately, figuring out exactly what day that would be, even if we could directly observe it, would involve computations that went to 25 decimal places. A planet like Earth would be a transitional edge case, a candidate planet if you will, subject to argument for thousands of years before new measurements and computations showed with a degree of confidence that it had become a planet. To imagine an even more problematic edge case, a disturbance in the orbit of a planet could cause it to become a non-planet for several million years, after which it would be a planet again.

A definition of a simple object that requires calculus to apply in the most ordinary cases and allows for this degree of fuzziness in actual, well-known edge cases is a poorly chosen definition. The fact is, the IAU was overreaching in making such a big change in the definition of planet without checking with the public or the scientific community or even forming a consensus among its own members. This is a problem that could most easily be solved by the IAU itself, reopening its definition of planet and choosing a broader definition that is a better fit with the intuitive understanding of a planet as a physical object. My guess is that they have about 15 years to make that correction. It could be almost as simple as inventing a term such as “major planet” for something close to the current definition of planet, then including every kind of “planet” in the word planet. If they fail to act, what is likely to happen is that the news media and public will adopt something closer to the popular understanding of a what a planet is, and devise an awkward term such as “IAU planet” for the IAU’s broken definition.

Wednesday, July 22, 2015

Some web pages are designed to be power-hungry. They can afford to do that, since it is your power they are burning when you use your computer at home to view the web page.

If it is only a small amount of electricity, perhaps a watt, we might decide we don’t care. It might take days for 1 watt to turn into 1 cent of energy consumption. If it is more than this, maybe we do want to keep track. Apple famously redesigned its operating system and browser for advertising energy efficiency after discovering that more than half of the power consumption of a typical desktop computer can go to swap ads on web pages that the user isn’t even looking at. As Santeri Paavolainen noted in a recent post, “The question is how much power can a power-hungry website consume?”

Santeri went to the trouble of measuring the power consumption of isolated web sites displayed on a MacBook Pro. Notably, he did this with Flash turned off. That’s important because Flash is known to be power-hungry, too much so to run in web pages on smaller mobile devices. A single Flash advertisement can consume more electricity than an entire web page, so including Flash would allow the randomized selection of advertising to obscure the results. Santeri measured just 12 web sites, but found a wide range of power consumption. There was a consistent difference of nearly 10 watts between the more efficient web sites and the average. Just as important, one of the twelve sites consumed nearly 40 watts more than the average. We can assume this site suffered from sloppy coding, but it nevertheless demonstrates the benefit that we could obtain from a hypothetical power meter and on-off switch for web features.

Measuring the power consumption of a web page is a tricky thing to do. Even minor changes in browser, operating system, and hardware can change the power profile around. To cite a very obvious example, in the CRT era, web pages with a black background consumed less power than those with a brighter background, but this advantage disappeared when we switched to LCD and LED displays. Santeri had to control for various other factors and display only one page at a time to get meaningful measurements, and even then, the measurements are valid only for one browser version and one model of laptop. It seems safe to assume that power consumption would be higher across the board on a desktop system.

. . . to a very large degree the owner of the website you’re visiting doesn’t actually control what you see, when you see it, how you see it, or even whether you see it. Instead, there are dozens of links in the advertising-technology chain, and every single one of them is optimising for financial value, rather than low-bandwidth user experience.

I know from my own investigation that this is true for the Shamanic Economist blog. The blog’s host goes to considerable trouble to keep track of page visitors, and that effort is the core of the web page you are looking at. Showing the post you are reading is an afterthought. The tiny advertisements at the bottom of the page and in the sidebar (on the desktop rendition of the page) routinely take up more bandwidth and presumably consume more power than the content of the page.

None of this will change as long as we don’t have meters for web page bandwidth and power. If a web site freezes and crashes frequently, you can guess that it is sucking bandwidth and power in a big way, but so do more carefully tested sites that look perfectly stable. If you are a web coder, you know how to examine the components of a web page you visit, but even most web developers aren’t coders, so they don’t necessarily have a way to measure the results of their work.

The bottom line: There is plenty of room for improving efficiency in the delivery of web content, but it is hard to see where those changes will come from as long as monetization remains the driving focus of the web.

Sunday, July 19, 2015

It became obvious by 2009 that television was starting to lose its grip on popular culture, but it took five years for the industry to acknowledge the change. U.S. television subscriptions continued to creep upward, not hitting a peak until the 2014 Super Bowl. With subscriptions down a solid 1 percent since then, television has started on its long-term decline. A one percent decline may not sound like much, but there are other measures that tell us television will be hard pressed to make a comeback.

People are spending less time watching television. Adult prime time viewing hours are down 10 percent from their peak.

Cable customers are watching fewer channels. To slow the loss of subscribers, cable providers are offering reduced bundles that would have been unthinkable just last year. With this effect, though total subscriptions may be down just 1 percent, the potential audience for any individual channel is down more sharply, with most major channels seeing a one-year decline of 4 to 5 percent.

Television is becoming an activity of old age. Television viewing is falling away more rapidly among viewers born since 1975. Viewers born since 1995 are not finding much time for television.

The number of people working in the content side of television is declining, with mass layoffs at networks and cable channels. From the history of print media, we know that a decline in content leads to a decline in audience interest with a lag of five to ten years.

My own television viewing probably peaked in 1997, with the novelty of the medium wearing off at the same time that the quality of programming was starting to decline. I canceled my cable subscription in 2006, and since then my television viewing hours (including television segments shown on the Internet) have declined to the point where they can no longer be measured in hours per week, but perhaps hours per year. With no television at home and my friends dropping their cable subscriptions one by one, there aren’t many occasions to watch television programs. Ten years ago it was a novelty to go without television, but attitudes have changed in the last two or three years. These days, no one is surprised to hear that I don’t watch television. It seems that is considered the norm for a busy person who leads an interesting life.

Friday, July 17, 2015

This week we saw why the agreement on Greece was so difficult to negotiate. Questions surrounding the implementation of the loans precipitated political crises not just in Athens, but also in Berlin and even reaching London. In spite of a wide range of objections, the process is still moving forward, and banks in Greece may reopen on Monday. Capital controls will remain in place for quite some time to come, probably longer than a year, with only gradual loosening as time goes on.

Banks in Greece lost more than half of their deposits since the beginning of the year. However, they are still solvent according to the rules of banking, and the ECB says that the risks faced by the banks are essentially political in nature.

The experience of Greek consumers and businesses getting by without banking this month could be a valuable reference point for others elsewhere in the situation of a future banking system breakdown.

A credit union was liquidated yesterday by NCUA. Lakeside Federal Credit Union of Hammond, Indiana had 2,000 members. Member accounts and loans were transferred today to Teachers Credit Union.

Tuesday, July 14, 2015

It is hard to keep up with Flash, the legacy web-animation software plug-in. Last month I went to the Adobe site for two urgent security updates for Flash, but it was not enough. There are more security flaws in Flash with active exploits occupying the advertising boxes of web sites you are familiar with. Some are corrected in the latest update of Flash, but others remain. That is, if you look at major media web sites with Flash turned on, you will see browser crashes and glitches at least, and you are at risk for worse damage than that. The simplest option is to turn Flash off. This is something I did two weeks ago.

At first, I thought I would wait a day or two until I had met my most urgent deadlines, and then I would go again to the Adobe site and download the third patch in less than a month. But after a couple of days I changed my mind. The truth is, the web is better with Flash turned off.

Immediately I noticed that web pages seemed quieter. There were not so many bizarrely deformed images bouncing around the screen begging for my attention. Advertisements didn’t jump in front of the content on the page at unexpected times. This was my early reaction:

For the past two days, I've been finding that the world is more peaceful when there isn't so much Flash. pic.twitter.com/spRievRlij

But it is more than just this. It was far less common to see web pages that froze up and wouldn’t scroll for a minute or two. Browser crashes became less frequent. Now that I think of it, I also haven’t had a computer crash in the last two weeks. I don’t know if that is because of turning Flash off or just good luck, but statistically, you would expect that turning Flash off would result in fewer crashes.

You would think it would be a big compromise to have Flash turned off with so many web pages that still use it (including, at times, this blog), but this isn’t the issue I had expected. In many web pages that use Flash, the behavior of the page doesn’t change in any detectable way with Flash turned off, so these pages are perhaps using Flash just out of habit and not because they rely on it for anything. In the rare cases where a web page does depend on Flash for something I care about, I can turn Flash on just for that one page, a step that requires just a single click in the Firefox browser. If I am feeling especially security-minded, I might look for a way around that web page. Perhaps the same information is available somewhere else in a more secure format.

Meanwhile, the tide of public opinion seems to be turning against Flash. Over the weekend the new security director at Facebook called for an end-of-life date for Flash.

It is time for Adobe to announce the end-of-life date for Flash and to ask the browsers to set killbits on the same day.

Then, overnight, Mozilla decided to turn Flash off by default in Firefox, the result of newly documented exploits that Adobe hasn’t committed to fixing. Mozilla has done this with hundreds of other browser add-ons that developed critical security flaws, and it’s clear they came to this decision only with great reluctance in the case of Flash.

Today, then, half a billion web users are joining me in the Flash-free web. Of course, it is still early morning in North America, but so far there hasn’t been any sign of outcry or even grumbling about Flash’s new blocked status. So far, there are more posts about how to uninstall Flash than about how to enable it again. If people see the same thing I’m seeing, they won’t want to go back to a web littered with Flash. Maybe turning off Flash is a change whose time has come.

Monday, July 13, 2015

The tentative agreement on Greece reached a few hours ago is not a substantial improvement over the one that the EU proposed three weeks ago only to withdraw two days later, nor is it a noticeable improvement over the plan Greece put forward four days ago. The cost of the three-week delay to EU governments is easily over €100 billion. The broader cost to the European economy is several times that. Even now, delays continue on important matters, with a decision on whether to reopen or liquidate banks in Greece not expected before Thursday.

The delay was unavoidable, it is said, because of the governance flaws of the eurozone. The cross-culture consensus-based approach makes it impossible for the EU to anticipate, avoid, or respond to a crisis in which different countries have differing perspectives. I guess we can add that to the list of structural flaws in the eurozone that will have to be addressed when conditions permit.

Saturday, July 11, 2015

Health Canada has decided to tighten its guidelines on acetaminophen after a study showed how often accidental overdoses occur. An average of 2 people per day are hospitalized in Canada because of illness caused by acetaminophen overdose that was unintentional. People may not realize how much acetaminophen they are taking because the drug is so often mixed with other drugs.

Acetaminophen is a tricky drug to regulate because it is generally harmless when taken as a single dose but can easily be debilitating or fatal if taken for more than a few days in a row or in combination with alcohol. Indeed, most of the liver damage historically attributed to chronic alcohol abuse was instead caused by acetaminophen. Health Canada says it will probably lower the dosage of the drug, change guidelines, and make labeling more clear.

Friday, July 10, 2015

It was back to the drawing board for Greece and European authorities after voters in Greece soundly rejected an IMF austerity plan in a referendum on Sunday. The new plan proposed by Greece last night was not so different as you might expect, but importantly, it does not lean so heavily on selling public property to foreign investors. The plan has received mostly favorable reviews so far and could be approved as early as Sunday. Caution is in order, however, as some of the same officials who need to approve the new plan proposed a similar plan last month only to disown it two days later, setting up the referendum in Greece. During the delay, a humanitarian crisis has erupted in Greece, with food aid coming in from three continents to feed families left hungry in a country nearly depleted of cash. Greece will need to issue a quasi-currency soon, but the government has carefully avoided mention of that in the last few days as it pushes to negotiate a three-year bailout extension this weekend.

There are varying estimates of how depleted Greek banks are. One analysis ended up concluding that depositors had already withdrawn virtually all their deposits from the largest banks in Greece, but that seems unlikely. The situation will improve in some ways when the banks eventually reopen. Then exporters will be receive payments for their last two weeks of exports, and that will enable them to pay their workers and suppliers.

Europe clearly miscalculated in withdrawing its last plan for Greece last month. The agreement they are likely to end up approving this weekend is better, to be sure, but the improvements are tiny compared to the decline in value the euro has suffered and the damage to the eurozone’s reputation. These are costs that will be felt across the eurozone and so far show no signs of being easily reversed.

If the problems in Greece fade from view a few weeks from now, it will be because of the slow-motion crash underway in China, particularly in that country’s stock market. China has taken increasingly desperate measures to prop up its stock market this month, but nothing worked until Thursday when authorities imposed a six-month ban on selling stocks for large holders who own more than 5 percent of a company. With no sellers, obviously prices stopped going down, but at the same time, it is no longer really a market if you can buy but you can’t sell. Investors and funds whose accounts are frozen for six months while the market continues downward will have a hard time convincing themselves to ever buy stocks in China again. Freezing out the large investors also makes it difficult to conduct an IPO, so that the dozens of recently canceled IPOs might never go forward. Yet the government has no good options. A full-on stock market crash in China would weaken the government‘s authority and could even lead to regime change. At the same time, an enormous amount of bank-supplied funds, said to be over 1 trillion dollars, is in play in the Chinese stock market, so that the continued decline of stocks could eventually lead to bank failures on a scale the country has never seen.

There was a bank failure in Denver tonight, with state regulators closing Premier Bank. It had $30 million in deposits. The bank had been in financial distress for eight years after a period of making too many business startup loans. It closed its headquarters four years ago as a cost-cutting measure. An attempt to recapitalize the bank last year fell short. United Fidelity Bank is assuming the deposits and purchasing the assets.

In Pennsylvania, a credit union failed tonight. The NCUA liquidated Trailblazer Federal Credit Union in Washington County, transferring member accounts to Chrome Federal Credit Union. The failed credit union had more than 1,000 members.

The story examines separate attempts to push monetary policy beyond its limits in the eurozone and China. “Whatever it takes” is the familiar phrase famously used by the head of the euro to characterize the efforts of the European Central Bank to preserve the currency union. It is hard to say “whatever it takes” in any context without irony, but especially so in the area of monetary policy. Economists who have made a special study of money will be the first to tell you that there are many things money simply can’t do, no matter how precisely and professionally it might be managed.

In Europe, of course, there is the open question of whether the flow of money from the central bank is enough to keep the banks in Greece afloat. When there is even a moderate degree of public eagerness to move money out of a country perceived as troubled, adding more money to the country simply results in faster outflows. We see this in Greece, where people lining up to draw €60 from the ATMs are, in most cases, not spending the money that day or that month, but saving it for future months. To the extent that they are able to, many are depositing the cash in banks that they consider safer. Obviously, the banks of choice at this point are banks operating in countries other than Greece. Raising the daily limit would not calm these depositors, except in the sense that eventually the accounts would be empty.

An inflationary monetary policy would go a short distance toward easing the financial pressure on Greece, but when Mario Draghi said “whatever it takes” in 2012, he didn’t mean to imply that the ECB would go that far.

“Whatever it takes” is a peculiar philosophy in the best of times. Originally it implied any degree of personal initiative and effort that would achieve a specific result, but it doesn’t take long to discover that initiative and effort won’t get a person past even ordinary obstacles, so the meaning of “whatever it takes” tends to get expanded as you go along. This approach, if you adhere to it, inevitably leads to success or an existential crisis — often, both. The existential dilemma is most famously stated as “God is dead,” but for philosophical purposes, you could just as well say, “Individual initiative is all a lie,” or “Extreme emergency monetary measures won’t restore public confidence.” It’s all the same thing.

Some of the limits of monetary policy have been known all along. “You can’t push on a string” is the colloquial way of explaining why lowering interest rates from 4 percent to 0 percent fails to create any additional net economic stimulus. In truth, money policy has very few instruments at its disposal and is starkly limited in what it can hope to accomplish.

These limits are abundantly clear in the breakdown in China. There, the central bank, regulators, and central government policymakers are working together to try to restore confidence in the stock market. Having already pushed too far by encouraging individual stock investors to borrow huge sums of money to buy stocks, the government finds itself with little leverage left to slow down a stock market crash. Today it is said that half of the stocks in China were halted — trading was stopped in those stocks after they fell the maximum amount allowed in a single trading day. Traders responded by selling the stocks that remained, including solid companies that in theory shouldn’t be affected in market fluctuations. The result of the policy intervention at the end of the day is the widespread feeling is that the whole market is going down.

The week started with an extraordinary show of support for the stock market. The central bank made loans directly to brokers with the instruction to find investors who would be willing to borrow the money and buy specific troubled stocks that the central bank wanted to support. That stabilized the market for two days, but at what cost? The loans are legally dubious to begin with, and they give the impression that the government has thrown ethics out the window in a desperate attempt to prop up a faltering economy, hardly a way to reassure the public. To illustrate the ethical problems with this approach, imagine the fate of an individual investor who took one of the central bank loans and entered the market on Monday. Tonight the investor is down 10 percent in an investment made with 90 percent borrowed money. The investor’s life savings, more or less, got wiped out in two days. It is a high social cost, impossible to defend for a strategy that had a low probability of success to begin with.

Historically, such a bold stock market intervention would be saved for the end of a crash, when stock prices had fallen to 5-year-lows. For China to attempt such an intervention so early implies that the central government is worried that everything is falling apart. That lack of confidence is part of the original problem. The stock market crash and general economic slowdown in China really could bring down the government, just as the crisis in Greece has brought down a series of governments there, but by responding out of desperation, the government in China has only underscored its fundamental lack of confidence.

The “whatever it takes” philosophy seeks to replace desperation with desperate effort in the hope that the results will be better. Unfortunately, desperation doesn’t necessarily increase the chance of good results. In Europe, for all the extraordinary efforts being put forth there, the situation still looks alarmingly similar to no one doing anything at all. The desperate efforts, so far, are going for nothing. Things look more serious in China. Desperate efforts there have only succeeded in adding fireworks to the fire.

Tuesday, July 7, 2015

A trial program in France found that battery storage for solar-generated electricity is competitive with diesel generators and grid power in places where electricity costs more than 30 euro cents per kilowatt hour. With the average price of electricity in Europe around 21 euro cents per kilowatt hour, it is not yet time for wide deployment of batteries as part of the power supply. However, that threshold could be reached in five to ten years with incremental improvements in the technology. In the meantime, each step up in battery performance (or in the price of fossil fuels) makes battery storage practical in a few more places.

Monday, July 6, 2015

In yesterday’s austerity referendum in Greece, much of the difference between the Yes and No voters seems to be explained by the age difference. The only age group to support the referendum was 60 and older. In this group, 50 percent voted Yes compared to 39 percent who voted No. Among voters under 30, barely one fourth voted Yes. This reflects a drastic difference in perspective between two groups separated by only 30 years of history.

I believe both Yes and No voters were voting to minimize risk and ensure continuity, but have differing views on where the risks and the potential for continuity are. Those who voted Yes were willing to risk a long-term economic depression on a scale the world has rarely seen. It is a risk that makes no sense to No voters, especially those under 32, who might forfeit their entire careers under that scenario. But those who voted No were willing to take a chance on the many unknowns of a whole country depleted of money, something that has never happened before because it is only the unprecedented monetary union of the euro that makes such a thing possible.

The age difference becomes more important when you look at the Eurogroup leaders. Nearly all are over 60, so perhaps they share much of the point of view of Greece’s Yes voters. The notorious “adults in the room” comment of last month looks a little different now. Are the Eurogroup that impatient with the needs and perspectives of people less than 60 years old? That’s an approach that may run into trouble for leaders who are supposed to be representing the interests of a population mostly under 60 years old in a process that is supposed to be founded on democracy.

Sunday, July 5, 2015

Greece voted today on a proposed expansion of the country’s austerity program. There are no fans of austerity in a country facing a seemingly endless depression, but of course the question is not as simple as that. The other implications will continue to be debated even after the outcome of the vote is known. The polls are closed and the counting has started. No one seems to know how the voting will stack up at the end of the night. I’ll be following tonight’s results on these news sites:

6 pm UTC: It’s early with a quarter of the votes in, and I want to be cautious, but I think it’s telling that No is ahead by more than 10 points in most of the places reporting so far. No voters are celebrating in the streets.

6:30 pm UTC: With 41% counted, No is ahead 61-39. It’s not the long night that some reporters had anticipated, but a landslide for No.

7 pm UTC: Unchanged vote margins with half of the vote counted.

7:30 pm UTC: The euro is down more than 1 percent in early trading.

8:15 pm UTC: One minor German official has called the Greek referendum illegal. The more important officials are apparently comparing notes and will have nothing to say until Monday afternoon. By remaining silent European officials risk creating the impression that no one has a plan, and that could rattle stock markets Monday morning.

Post-election polls suggest that voters under 30, heavily opposed, not only turned out in large numbers but also persuaded some of their elders to switch their votes from Yes to No.

11 pm UTC: With 95 percent of the vote counted, the near-final margins remain 61-39. Both the vote outcome and its decisiveness appear to have caught the EU off guard. If the EU’s plan B was, as widely speculated, to sit back and wait for Greece to change its mind (or collapse), that will have to be rethought now. A Eurogroup crisis meeting is set for Tuesday.

Friday, July 3, 2015

Banks in Greece closed on Sunday. They opened again at midweek but only in an extremely limited way. For two days many account holders could not get any cash at all. Some people were rationing food, unable to get cash to buy food and with no assurance that money would be forthcoming for a week or longer. The logical response is to eat only a small fraction of the food that is already in the cupboard on any given day, regardless of how little that is. The scale of the humanitarian crisis was recognized internationally and some foreigners sent food to add to the relief effort already underway across the country. As of now, account holders are limited to cash withdrawals of €60 per day, more than enough to feed a family, but not necessarily enough money for much else. Daily withdrawal limits could be lowered, as there is not enough money still in the country to keep it fully operational.

On Sunday Greece votes in a referendum on the last IMF proposal. If approved the IMF plan would plunge Greece into a deeper depression than it is in already, with unemployment possibly going up to nearly 40 percent. But if the plan is not approved, the liquidity crisis in Greece will only get worse. There are no good choices in the referendum.

My guess is that Greece will vote no. In that case the government will have to arrange for some kind of quasi-currency so that it can pay workers and people can buy food. After so much money has been moved out of the country by nervous depositors and investors, there is no longer enough money in Greece to allow people to make everyday transactions. If voters vote yes, the situation is far more muddled. National elections would follow, and the new government would be obliged to go back into the same fruitless negotiations that brought Greece to where it is now. Neither result will provide any immediate relief to Greece’s banks, and both capital controls and quasi-currency will surely be necessary for more than two years.

Greece’s embattled prime minister has complained that European authorities want to humiliate Greece. This might have sounded like whining, but documents leaked from multiple sources this week confirm this view. European authorities are not concerned about what happens to Greece or whether it survives as a country so much as they are about the deterrent effect of their actions. They want to dissuade any other euro government that might be thinking of secretly borrowing excessive amounts the way governments in Greece previously did. If Germany and France can succeed in destroying Greece economically, then any other country thinking of following the same path would have great difficulty imagining that such a strategy would lead to a good outcome. Of course, a more effective deterrent would be if the guilty parties could be jailed and their individual property forfeited, but while that is probably within the reach of Greek law, Greece is too corrupt a country to contemplate anything of the kind. Instead, it is the prosecutors and reformers who have spent days in jail over the last five years.

It is one of the tragic flaws of a currency union that any country in it can find itself bleeding money the way Greece is now due to factors beyond the national government’s control. The natural tendency is for depositors to prefer keeping money in the financially stronger countries, but the result is that the stronger economies get stronger while the weaker economies get relatively weaker. This perverse dynamic of a currency union, which sees countries like Germany and the Netherlands grow economically at the expense of countries like Italy and Finland, will make the euro zone more and more unstable as time goes on unless someone can devise a way around it.

Thursday, July 2, 2015

It is hard to say that without making it sound like science fiction. Nevertheless the tragic death of a worker installing a robot in an automobile assembly plant shows how it is possible to be overly complacent about the harm that robots can do. Machines that have the innate tendency to recognize and react, coupled with sufficient strength to do harm, need to have what you might call personal space. It may take human workers some time to develop accurate intuition about this, and in the meantime, we will have to draw rigid lines around the robots to stay safe.